Hot (and cool) industry attracts private equity cash

The stay cool air conditioning business is red hot among the cash-flush private equity crowd. 

At least three HVAC and related home services companies in the region have been purchased by private equity firms in the past six months — with more potentially on the horizon. One of the buyers, newly formed Tampa-based Apex Service Partners, plans to spend at least $100 million of equity capital into founder-owned homes services companies nationwide in the next five years. Apex’s funding, according to a statement, comes from San Francisco-based Alpine Investors, a middle-market private equity firm specializing in technology and service industries.

“There are a lot of roll-up deals in this industry all over the country,” says Emery Ellinger, CEO and founder of St. Petersburg-based Aberdeen Advisors. Aberdeen recently facilitated the sale of an HVAC company, St. Petersburg-based Air Quality Control, and Aberdeen has another deal, of a large Florida home services firm, in the works, Ellinger says.

There are multiple reasons for the surge, industry executives and business acquisition experts say, starting with some of the private equity staples: low interest rates, high amounts of available capital and solid returns.

In addition to the typical factors private equity firms seek, other causes are at work. One is many home services entrepreneurs, some who started out with one truck and grew are baby boomers and are at or near retirement/exit strategy age. Another key: The industry is fragmented and growing, Ellinger says, which leads to an opportunity to buy multiple high-performing businesses and cluster them into one entity. Finally, there’s a built-in demand component to home services, both now and in the smart home of the future, with upgrades and improvements in technology. It’s the industry fallback: Everyone needs AC.  

‘While not recession-proof, we are recession-resistant.’ Jaime DiDomenico, CoolToday

“While not recession-proof, we are recession-resistant,” Sarasota-based CoolToday/PlumbingToday President Jaime DiDomenico says of his industry — his firm was acquired in March. “We’ll take a dip in recessions, but it’s not like we are new construction or restaurants.”

DiDomenico says good HVAC firms are producing cash flows of 8% to 10%. Although high-flying tech firms can dwarf those returns, home services has less risk.

The usual MO in private equity is to buy and sell, not buy and build. But DiDomenico and Ellinger see this trend differently, so far, from past eras of industry consolidation to wring profits. Some firms now aim to build industry giants — like Alpine’s Apex Service Partners. “Private equity firms want to buy a brand and buy a culture,” DiDomenico says. “Then they want to leverage what they buy.”

Alpine has been here before, too. It founded and built the Wrench Group, an HVAC and plumbing services conglomerate in the Tampa/Sarasota, Atlanta, Dallas, Houston and Phoenix markets. When Wrench surpassed $150 million in annual revenue in 2016, Alpine sold it to another private equity firm, Investcorp. (Wrench, under Investcorp, acquired CoolToday in March.)

A glance at some of the recent home services maneuvers in the region includes:  

• CoolToday/PlumbingToday: Wrench bought CoolToday with an eye toward the fast growing Tampa and Sarasota markets. In another sign of the interest in HVAC nationally — and counter, in this case, to buy and hold — Investcorp sold Wrench less than two months later to Los Angles-based private equity giant Leonard Green & Partners.

DiDomenico, who bought CoolToday with some business partners in 2004 for $400,000, says be it Investcorp or Leonard Green, from his end the deal made perfect sense. At 58, he doesn’t want to stop working, but he also sought the flexibility and financial freedom an acquisition provided. He will report to a Leonard Green official once a quarter, but essentially his job remains the same: Be the face of CoolToday in the Sarasota and Tampa markets and continue growing the business. It did $38.3 million in revenue in 2018, up 19.6% from $32 million in 2017. “I’m still doing all the same things I was doing before, DiDomenico says.

• Air Quality Control: This acquisition was a seller, Joe Renda, looking to cash out of the industry and buyers, entrepreneurs Rick Vassallo and Victor Pagano, looking to get in. Aberdeen’s Ellinger says his team had relationships with both sides for several years and put them together when the timing was right.

• Best Home Services: Announced in early July, this was Apex’s first deal, followed soon with the acquisition of Orlando-based Frank Gay Services. With some 300 employees, Naples-based Best Home Services will continue to be run by co-CEOs and brothers, Chadd and Keegan Hodges. Apex bought a third firm, Ball, La.-based Southern Heating & Cooling, in late September.